WIP inventory: Asset or liability?

Managers in many firms are using information based on current cost accounting methods to make crucial business decisions, and these decisions may be somewhat misleading. What is needed is a method to handle inventory valuation so that managers can understand the implications of Work in Process (WIP) and how it affects their business. Accurate reports will help managers make better business decisions. As an example, in many instances, WIP inventory actually loses real world value if it goes through the manufacturing process, and this loss of value is not considered on the financial statements. Managers need to know the market value of WIP inventory as it goes through the manufacturing process because only then will managers be able to make knowledgeable decisions that affect the goal of their organization, which should be profits, not assets. This article looks at the pros and cons of what is currently referred to as generally accepted accounting principles and changes that could improve accuracy.